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The US Court of Appeals for the Federal Circuit is again divided on the test for patent-eligible subject matter, with the majority and minority exchanging biting comments. The CAFC decision in CLS Bank v. Alice Corporationcomes quickly on the heels of the US Supreme Court decision in Mayo v. Prometheus and the remand of Ultramercial v. Hulu, circumstances that the dissent characterizes as the Supreme Court, “hinting (not so tacitly) that our subject matter patentability test is not sufficient exacting”. The majority nonetheless forges ahead with a restrictive reading of the “abstract ideas” exception to patentability and finds Alice Corp.’s claims to be valid under 35 U.S.C. §101. Writing for the majority, Linn C.J. acknowledges the uncertainty and unpredictability that has reigned in the Federal Circuit and beyond since the USSC decision in Bilski. The majority seems to conclude that because the abstract ideas test is difficult to define and apply, it should rarely be used to invalidate a patent unless a court is “wholly convinced” otherwise.

Alice Corporation’s invention relates to a computerized process for managing settlement risk in the exchange of obligations amongst financial institutions. Claim 33 of patent 5,970,479 was a representative claim:

33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these [sic] transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and

(d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

At the District Court level it was agreed that the claims (in particular the “shadow credit and debit records”) required computer implementation. Linn C.J. begins with an overview of the state of the law on patent-eligible subject matter. He acknowledges that the “abstract ideas” test has become a serious problem because no one knows what makes an idea “abstract”. He then discusses the notion of “pre-emption” and the notion that some claims may “pre-empt” future innovation in an art field, which may be a basis for considering them too abstract, for which he finds support in Prometheus. He concludes that, “Claims that are directed to no more than a fundamental truth and foreclose, rather than foster, future innovation are not directed to patent eligible subject matter under § 101.”

In applying the “abstract ideas” exclusion, the majority sets a high threshold for invalidating claims as being too abstract:

“…this court holds that when—after taking all of the claim recitations into consideration—it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.”

“Unless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible “abstract idea” under 35 U.S.C. § 101.”

Linn C.J. repeatedly reassures readers that computer implementation alone is not enough for patent-eligibility and that the addition of machine elements must impose a meaning full limit on the scope of a claim. The majority goes on to find that kind of meaningful limit in the language of Alice Corporation’s claims.

“Unlike the Bilski line of cases, however, it is difficult to conclude that the computer limitations here do not play a significant part in the performance of the invention or that the claims are not limited to a very specific application of the concept of using an intermediary to help consummate exchanges between parties. The dissent criticizes the majority for failing to explain “why the specific computer implementation in this case brings the claims within patentable subject matter,” (citation omitted), but this criticism is misplaced. The limitations of the claims as a whole, not just the computer implementation standing alone, are what place meaningful boundaries on the meaning of the claims in this case.”

“The asserted claims appear to cover the practical application of a business concept in a specific way, which requires computer implemented steps of exchanging obligations maintained at an exchange institution by creating electronically maintained shadow credit and shadow debit records, and particularly recite that such shadow credit and debit records be held independently of the exchange institution by a supervisory institution; that start-of-the-day balances be obtained from the exchange institution; that adjustments be made to the credit records based on only certain specified allowed transactions under the “adjusting” limitation; that such adjustments be made in chronological order; that at the end of the day, instructions be given to the exchange institution to reflect the adjustments made on the basis of the permitted transactions; and that such adjustments affect irrevocable, time invariant obligations placed on the exchange institution.”

“The claim limitations can be characterized as being integral to the method, as “play[ing] a significant part in permitting the method to be performed,” and as not being token post-solution activity. It is clear, moreover, that the limitations requiring specific “shadow” records leave broad room for other methods of using intermediaries to help consummate exchanges, whether with the aid of a computer or otherwise, and, thus, do not appear to preempt much in the way of innovation.”

In dissent, Prost C.J. is highly critical of the majority reasoning and criticizes them of failing to follow the Supreme Court’s instructions. The dissent, however, goes on to ‘paraphrase’ the claims in a chart that boils down (or abstracts?) the claim language to a “plain English” translation, which is then dismissed as being “in effect” an abstract idea. This technique meets with scathing reproach from the majority. On the merits of the majority decision, Prost C.J. states:

“So why does the majority reverse the district court? Frankly, because “it is difficult to conclude that the computer limitations here do not play a significant part in the performance of the invention.” (citation omitted). That suggests that the majority’s “manifestly evident” standard is more of an escape hatch than a yardstick. In other words, the majority has resurrected the very approach to § 101 that the Solicitor General advocated—and the Supreme Court laid to rest—in Prometheus. I cannot agree.”

It would seem that the CAFC remains as divided as ever on the issue of patent-eligible subject matter for computer-implemented inventions. The “abstract ideas” test the Supreme Court revived in Bilski and Prometheus seems only to have created greater confusion and division.